Greg Hinz On Politics

Quinn's pension fix: Retire later, pay more, school districts kick in

In his second big move in two days to shore up state finances, Gov. Pat Quinn Friday called for major changes in the state's grossly underfunded employee pension plans, changes that would affect employees and local governments.

The plan would have employees paying an additional 3 percent of their salary each year toward their pension, reduce cost-of-living increases to 3 percent, or one-half the rate of inflation — whichever is smaller — and boost the normal retirement age to 67. It now begins as low as age 55 in some plans.

Local taxing bodies — specifically school districts, community colleges and public universities — would be responsible for paying the normal costs of pensions for their workers themselves. Those costs now are borne by the state, and Mr. Quinn said the change will be phased in "over the next several years."

In exchange, Mr. Quinn said, the state's pension systems, which now collectively have $83 billion in unfunded liabilities, would be 100 percent funded by 2042, with the state subjected to stiff new requirements forcing it to make regular payments toward that goal.

And, he said, workers would keep their defined benefit contributions, something that has largely disappeared from the private sector.

"I did not create these problems, but I have to solve these problems," Mr. Quinn told reporters at a Friday news conference. The fact is, he added, pension costs now are so high that they're crowding out other needs, such as funding for schools.

The Quinn plan — released after a legislative working group failed to reach consensus on its own proposal — seeks to overcome constitutional objections by offering workers a choice: Agree to the new plan and its beefed-up state funding, or stick with the old plan and lose health insurance coverage, any inflationary growth in pensions and, perhaps, any pension at all if the state doesn't have the money.

Mr. Quinn insisted that details about when and how much still are flexible.

"We haven't come to a solution there," he said. "We're still negotiating that." But higher property taxes are not on the way and local districts do need to pick up some of their own costs, rather than sending them to Springfield, he added.

But the issue has a strong political component to it. Local taxpayers in Democratic Chicago pay the employer share of pensions for Chicago Public Schools teachers. But Downstate and suburban districts pass their bills on to the state-funded Teachers' Retirement System. That has grated on Chicago officials for years, with Mayor Rahm Emanuel vowing in a recent interview that the disparity "will not stand."

The proposed reduction in the pension cost-of-living adjustment may be particularly meaningful, insiders say.

Under current law, the annual COLA is the minimum of 3% or inflation, and that figure is allowed to compound. Mr. Quinn would effectively reverse that, and allow only simple interest.

Overall, he said, his plan would save state taxpayers $65 billion to $85 billion through 2045, based on current actuarial assumptions.

On Thursday, the governor proposed a $2.7 billion fix for the state's Medicaid program. That proposal, as well as the pension plan, would have to be approved by the General Assembly.

2:15 p.m. update — The unions finally are out with their response and, if predictable, it is bitterly negative.

"The proposals are insensitive and irresponsible," said state AFL-CIO President Michael Carrigan on behalf of the We Are One Illinois coalition. "We strongly disagree with the proposals.

"By appearing to endorse these unfair and unconstitutional cuts, the governor has made the process of finding common ground much more difficult," the statement adds. "Forcing public servants to choose between two sharply diminished pension plans is no choice at all. It is a clearly illegal attempt to solve the problem caused by past governors. . . .Public employees must be treated and heard as full partners."

The average public employee pension today, according to Mr. Carrigan: $32,000 a year.